One in five notebooks sold is now a Chromebok, Microsoft appears desperate to beat Google back

Seemingly out of nowhere Google Inc.'s (GOOG) Chrome OS -- a Linux-kernel based personal computer operating system -- has emerged as a dominant force in the PC market.

I. At Last a True Challenge to the Windows PC Hegemony

According to market share data from the NPD Group Inc. -- a top market research group -- this year has been a rough year for Apple, Inc. (AAPL) in terms of market share, and a mixed year for Microsoft Corp.'s (MSFT) Windows platfrom. 2013 was a year of unbelieveable growth, as Google's Chrome OS-powered "Chromebooks" emerged as the first compelling mass-market Windows alternative on the budget end in decades, inheriting the legacy of the netbook.

Between Jan. and Nov. 2013 Chromebooks accounted for 9.6 percent share of U.S. sales of all tablets, notebooks, and desktop personal computers combined. On a year-to-year basis Chromebooks grew 47-fold in sales, a mind-boggling explosion.

That number contrasts harshly with Apple, Inc.'s (AAPL) laptop market share trends, which saw a drop from 2.6 to 1.8 percent in the traditional PC market (notebooks + desktops).

Chrome OS is posting incredible growth.

While tablets continue to fill an increasing role in Americans' electronic lives, both in terms of work and play, the traditional PC (notebooks, desktops) is as relevant as ever in 2013.

Apple was never able to muster a true challenge to the coalition of Windows PC OEMs (at least with regards to market share), leaving Windows free to enjoy hegemony of this crucial market for years. By contrast Chrome OS seems to have broken through, with Chromebooks now accounting for roughly one in five laptop sales this year. Key to this surge has been support from OEMs that were once Windows exclusive or nearly Windows exclusive.

Both Dell Inc. and Lenovo Group, Ltd. (HKG:0992) have announced education-geared Chromebook models (the Dell Chromebook 11 and the Lenovo ThinkPad x131e). These models are expected to be joined by consumer-aimed models in 2014. From a big picture perspective, this marks the first time in over two decades that every major Windows PC OEM has backed an alternative platform.

Laptop sales; Jan.-Nov. 2012/2013 [Data Source: NPD Group]

While iPads -- Apple's biggest "PC" product -- are still outselling ChromeBooks 3-to-2 in the "PC" market, ChromeBooks are outselling Apple roughly 5-to-1 in the U.S. market. Together 3 out of every 4 PCs sold (approximately) still run Windows. But of the sales on alternatively platforms, Google controls 5 out of every 6 PCs sold, roughly.

II. U.S. Tablet Sales -- iPad Still King; Windows, Android Give Chase

The iPad's share of the PC market also fell from 17.1 percent to 15.8 percent, cannibalized by Chromebooks and Android tablets. The fall might have been worse, had it not been for Apple's decision to produce a 7-inch tablet.

The reason we wouldn't make a 7-inch tablet isn't because we don't want to hit a price point, it's because we don't think you can make a great tablet with a 7-inch screen. The 7-inch tablets are tweeners, too big to compete with a smartphone and too small to compete with an iPad. [Increasing screen resolution on small devices is] meaningless, unless your tablet also includes sandpaper, so that the user can sand down their fingers to around one quarter of the present size.

There are clear limits of how close you can physically place elements on a touch screen before users cannot reliably tap, flick or pinch them. This is one of the key reasons we think the 10-inch screen size is the minimum size required to create great tablet apps.

In tablets Apple also appears to be losing its edge in unit sales in the U.S., the world's most lucrative market. Both Windows 8.x and Android tablets gobbled up part of the iPad's dominant U.S. market share in 2013, with Windows tablets being the biggest gainer. Nearly 1 in 10 tablets sold now is a Windows tablet in the U.S.; nearly 1 in 3 is an Android tablet.

Globally Android tablets have passed the iPad, so take these numbers with a grain of salt, although they are meaningful given the U.S remains one of the world's highest margin markets, and trails only China in volume for personal electronics.

Tablet sales; Jan.-Nov. 2012/2013 [Data Source: NPD Group]

In the tablet market Microsoft, Apple, and Google can all find positive signs in U.S. sales numbers. For Apple, it may have fallen a bit, but it still controls roughly 6 out of every 10 tablet sales in the world's most lucrative market.

For Microsoft, it's the fast growing market player, even if it still controls less than 1 out of every 10 tablets sold. For Google steady growth is slowly lofting it towards seizing the sales crown in the tablet market, as it already did internationally in 2013.

III. Desktop Sales -- Still Stronghold for Microsoft

The NPD Group numbers did not break down desktop sales by platform. While desktop sales (8.5 percent growth) trailed in year-to-year growth versus laptop sales (28.9 percent growth) and tablet sales (49 percent growth) they still represented more than 1 in every 4 devices sold.

Lenovo -- second place in terms of U.S. PC sales by OEM -- remains the strongest OEM not to have yet decisively jumped on the Chrome train. Apple, meanwhile, took third place, largely on the merits of its iPad "PC" sales.

LG Electronics, Inc. (KSC:066570) -- an OEM who hopes to follow Samsung's rise to power in the U.S. market in 2014 -- perhaps gave us a taste of things to come, showing off a Chrome OS powered "Chromebase" desktop PC last week.

Expect "Chromebases" to battle Windows desktops in 2014.

The pricey Mac Pro and budget iMac lines have never posed a serious threat to Windows desktop sales. Could Chromebases in 2014 follow in the line of Chromebooks' dramatic 2013? We'll just have to wait and see.

The key word, as you put it, is "somewhat of a an independent commentator", and "somewhat [of an] unbiased viewport"

Just because you own Macbook Pro and Windows and bought (but not bought one for yourself) a Chromebook, doesn't make you unbiased or objective.

Chromebook has a place in the game just like iPad and Laptops, but that's about it. It's functionality will always be limited (as it's designed to do). It's a transition product like Netbooks.

Ultimately, no one wants but buy themselves a iPad, Chromebook, and a Laptop. It makes no sense and the first company that can crack the code will win the ultimate prize.

It's pretty clear right now that what Google is doing is testing the waters and see what sticks. Samsung style. It's not a bad strategy, but doesn't mean it's a winning formula.

Android gets a big chunk of the market now, but how much is Google really making off Android? Do you know that they are making jack all in China?

In China, people aren't even using Google App Store, and they are leeching off Android's open source code. (And what is Google gonna do if they violate GPL license? Storm into China?).

Ultimately, you can make designer jean knock offs, but people will still buy designer jeans. That's Apple. But if you don't even bother to brand yourself exclusive, any joe blow can make identical products and there's nothing you can do about it. That's the challenge for Google. They have the reach, but they make ZERO off it.

It's like Chinese movies and actors. Their market reach is crazy, but how much of it goes to its rightful owners?

Google doesn't sell software, and they don't really make much (directly) off Android in the US or Europe either. They do, however, sell ads... and they make quite a bit of money off of that. This is part of why it's difficult comparing companies like MS, Apple, and Google, because we've got: a (mostly) software company, a (mostly) hardware company, and a (mostly) advertising company. If, say, Apple and Google aren't making the money on software sales that MS does, it doesn't mean they are doing poorly.

Anyway, you're sort of right in that Google needs to diversify, but I think hardware is nothing more than a means to an end in that game. What Google needs to do (and what they, and most major consumer tech companies appear to be working on) is getting into services.

With hardware, I think what people really want is to either show it off (i.e. it's a fashion accessory) or for it to be completely invisible. Right now, completely hiding portable tech is, at the least, very difficult, so the companies making pretty stuff are doing well. Endgame, though, will be technology that you don't see. At that point, which I don't believe to be terribly far off, it will not be good to be a hardware manufacturer.

Their attempt to use Google App Store have failed in China because anyone can create their own Google App Stores. Google cannot stop it ... because fundamentally, the ecosystem was created on the premise that anyone can do anything they want. The ultimate flexibility. Hence the popularity.

Now that Apple made its appearance in China (officially), it's not so easy for the chinese to bypass the AppStore due to the tight restrictions on the Apple EcoSystem. People will visit App Store. They will be force to spend $$$ to get what they want.

Fake Apple App Store is 1000x harder. Apple can simply shut those places down with their OS (remember, software and hardware integration). You can't stop it. They hold all the keys. ;-D

There is Pros and Cons to each approach (Google and Apple). Blindly call Apple "evil" and Google "good" is what fools do. Take sides when there aren't any to begin with.

What's truly amazing is Apple is able to make Computing .... cool. Why do you think they create Apple Stores? It's a shopping experience. What's more impressive, going to Apple Store or going to Microsoft Kiosk? Dell Kiosk? It's a joke.

They are so far ahead of the curve that it's not even funny. Apple recognize that the general public don't care about specs, features. What they really care about is branding and social acceptance, good services, and good reputation.

The technology behind it is a means to an end of building a brand. That's why they focus so much of their R&D on chassis design, software integration, lightweight parts, etc ....

There's much more profit to be made selling $200 designer jeans than going to your local chinese market selling $10 jeans. That is, if you are interested in making a profit.

Not everyone can afford $200 jeans, but Apple don't need 100% market share. They aren't interested in the lowest common denominator. That's the beauty. They have cracked the code.